The emerging integration of satellite technology into the 5G infrastructure – Markets and stakeholders

In many cases, the telecommunication and satellite markets can be seen as mature with little or no opportunities for sustainable competitive advantage due to limited potential for differentiation. The technology is stable and well diffused, and it is easy to enter the market due to developed infrastructures. Virtual network operators are established in the terrestrial case and the trend is emerging also in the satellite case. There is high international competition making the domestic cost advantage vulnerable. The sources of cost advantage are economies of scale, low-cost inputs and low overheads. Concerning the sources of innovation there is limited opportunity for product and process innovation but considerable opportunity for strategic innovation. Finally a strong trend for consolidation and alliances can be observed.

The sources of strategic innovation are reconfiguration of the value chain, redefinition of markets and products, and new approaches to differentiation. However, strategic innovators are often new market entrants (CNN in news broadcasting), existing firms at the periphery (Google starting network services) or firms from adjacent industries (Apple in consumer electronics). Most strategic innovators that serve as examples are non-European. Among others, this is the reason that the European Digital Single Market (DSM) has been identified by the European Commission as one of its 10 political priorities. The DSM aims to open up digital opportunities for people and business, ensuring that they can seamlessly access and exercise online activities under conditions of fair competition, and a high level of consumer and personal data protection, irrespective of their nationality or place of residence.

The current efforts towards satellite/5G integration are mainly technology driven and exhibit behaviours of protectionism with respect to markets (e.g. broadcast content rights) and assets (e.g. spectrum). These behaviours are not in line with the DSM objectives and lead to restricting the attention of the key involved stakeholders to the territories that have always been dominated by them. As a further result, terrestrial network operators may see satellite operators as competitors in many market segments and vice-versa. However this attitude prevents strategic innovation, and there is a significant risk that other stakeholders from other domains will enter the market with profitable services, just because they better understand where the value add lays.

In some respect the situation is similar to the effect of the telecoms market deregulation and liberalisation that allowed many so called Over-The-Top (OTT) service providers, to harvest the value add on top of existing available networks. The reaction of the incumbents was rather conservative and prevented them to look forward and innovate.
So, the question in the discussion should rather be: “Are we talking to the right stakeholders?” The attention should be diverted to identifying the right stakeholder roles in the value chain and provide the companies that assume these roles the right service in their role as customers of the infrastructure. In fact this stakeholder role(s) may not exist yet or may have emerged only recently.

Assuming the simple three layer model (Reflected today in the NIST cloud model, IaaS, PaaS, SaaS), where the infrastructure is at the bottom, and the application is at the top, there is a middle layer which is responsible for shielding the complexity of the infrastructure from the application. In the market today some stakeholders have understood that there is value in providing the middle layer. Most stakeholders that are positioned at the infrastructure layer try to customise their service offering towards the application layer on demand, which is not an efficient approach.
The application layer requires an aggregation of different infrastructure services that today cannot be sourced by a single company. As a consequence one could position in this middle layer the competency of “stitching” together different technologies, network segments, data processing and storage functionality to the extent that it meets the requirement of the application layer. The NGMN 5G white paper names this “stitched” environment a “slice”.

At a first approximation Google, Facebook and others can be seen at this middle level, even if it could be argued of whether they should be positioned at the application layer. A trend that can be identified is that these stakeholders have started since some time to deploy own infrastructure. In this context Amazon should be positioned at the infrastructure layer. We may now ask “Why are they doing so?” There are at least two reasons:

There is no sufficient global availability or coverage of existing infrastructure

The complexity of “stitching” together a “slice” that meets their requirements is too high

As a consequence the customers for both the terrestrial and satellite infrastructure providers are the companies that are able to “stitch” together and manage efficiently “slices”. These companies may be some of the existing infrastructure stakeholders, e.g. we see Telefonica, Deutsche Telekom and a few others aggressively trying to position themselves in the middle layer.

A completed DSM could contribute € 415 billion per year to Europe’s economy, according to the European Commission. Attracted by the huge potential market size, it is likely that new entrants will enter the market, for example with the ambition to assume a role in the middle layer. This assumption is fuelled by the strong trend of the complete softwarezation of the network which inherently bears the risk that information technology specialists will dominate this layer. The above observation for Google and Facebook basically supports this claim. Google is today the largest user of SDN (Software Defined Networks) in its datacentres. Facebook is perceived today by most of its users as a platform, which would inherently map to the middle layer if applying the NIST PaaS model.

Whether or not it is in the business interest of the terrestrial and satellite stakeholders to provide seamless integration of their infrastructures depends on the ambition of each company to enter the middle layer and offer highly efficient “slices” to its customers leveraging its own competencies in providing services optimally customised for each and every set of use cases and easily sourcing in the parts of the “slice” that lays outside its own competency. In this context it should be noted that the competencies for in-sourcing and out-sourcing lay mostly with information technology companies, posing an additional threat for infrastructure providers.